- Biden’s infrastructure plan can fuel a permanent boost to growth, the Dallas Fed’s president said.
- Where stimulus will fuel a sudden rise, infrastructure is a “long-term investment,” Robert Kaplan said.
- Inflation will still likely trend within the Fed’s comfort zone amid the new spending, he added.
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President Joe Biden’s infrastructure proposal can permanently lift the country’s economic output and drive stronger growth for years after the recovery, Robert Kaplan, president of the Federal Reserve Bank of Dallas, said.
The president rolled out the American Jobs Plan in a Wednesday speech, marketing the measure as a critical next step for his plan to revive the US economy. The $2.3 trillion spending package includes investments in traditional infrastructure like roads and bridges, nationwide broadband, clean water, and affordable housing.
The plan’s unveiling comes just weeks after Biden approved a $1.9 trillion stimulus plan. The March bill was necessary to breathe life back into the economy, but the “bump in GDP” expected from the stimulus will wear off over time, Kaplan said in a Bloomberg TV interview.
In contrast, the president’s new spending plan would provide a longer-lasting boost to economic growth as the country emerges from the pandemic, he added.
“The nice thing and the desirable thing, for me, about infrastructure spending: it’s that it’s a long-term investment,” the central bank president said. “It should help, in the future, create higher potential GDP growth, higher sustainable growth, better productivity.”
The American Jobs Plan is only the first half of the White House’s new spending push. Biden said Wednesday he aims to reveal the American Families Plan – a spending proposal with funds for public education and care facilities – in the coming weeks. Combined, the two packages will reportedly cost up to $4 trillion.
The additional spending measures come as economists debate whether Biden’s stimulus risks fueling rampant inflation. Where progressive economists see the plan as necessary, others fear the plan will overfill the hole in the economy.
The Fed has signaled it will allow inflation to rise above 2% as the economy recovers in hopes of reaching maximum employment. The stimulus could drive a sharp rise in inflation, but the impact will likely be temporary as the growth rate similarly slows, Kaplan said.
“I think you’ll see inflation moderate as we get into 2021 and into 2022 and 2023. But I also think it’s wise as a central banker to have a good dose of humility and an openness to learning as this all unfolds,” he added.
Kaplan isn’t a voting member of the Federal Open Market Committee and is set to become one in 2023.
The outlook is similar to that held by Fed Chair Jerome Powell. The central bank chief said the Fed aims to maintain its ultra-easy monetary policy stance well into the future due to lasting uncertainty around the coronavirus recession. Any stimulus-fueled jump in inflation is likely to be transitory, he added in a press conference.